July 21, 2015

Submitted via: e-ORI@dol.gov

Office of Regulations and Interpretations 

Employee Benefits Security Administration

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Proposed Conflict of Interest Rule [RIN-1210-AB32]

Ladies and Gentlemen:

AARP appreciates the opportunity to respond to the Department of Labor’s (the 

Department) request for comments on the proposed regulation relating to the 

definition of a fiduciary under 29 CFR §2510.3-21. To better reflect changes in our 

retirement system, the proposed regulation updates the definition of who is a

fiduciary as a result of providing investment advice for a fee to retirement 

investors. According to the Investment Company Institute, over 82 million 

households are counting on employer-sponsored plans, Individual Retirement 

Accounts (IRAs), or both, for their retirement security. In order to better ensure 

these families will have adequate income in retirement, investors need to know 

that the retirement advice provided by financial service professionals is in their 

sole interests.

AARP is the largest nonprofit, nonpartisan organization representing the interests 

of Americans age 50 and older and their families. Nearly half of our members are 

employed full or part-time, with many of their employers providing retirement 

plans. A major priority for AARP is to assist Americans in accumulating and 

effectively managing adequate retirement assets to supplement Social Security. 

The shift from defined benefit plans to defined contribution plans has transferred
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

Page 2 of 16

significant responsibility to individuals for investment decisions that will directly 

impact the adequacy of the assets available to fund future retirement needs. 

I. IT IS LONG OVERDUE FOR THE DEPARMENT OF LABOR TO RECONSIDER 

ITS 1975 REGULATION. 

AARP supports the Department’s determination to reconsider its 1975 regulation. 

ERISA section 3(21) provides that anyone who provides investment advice for a 

fee or other compensation, direct or indirect, shall be considered a fiduciary 

under the Act. A fiduciary, under ERISA, is required to act prudently, solely in the 

interests of participants and beneficiaries, and generally without conflicts of 

interest. Fiduciary status and its corollary standards and prohibitions are at the 

core of ERISA’s protections. See Sections 3(21), 404 & 406, 29 U.S.C. § 1002(21), 

1104 & 1106.

The Department’s initial 1975 interpretation of fiduciary does not derive from 

ERISA’s statutory language, Section 3(21), 29 U.S.C. § 1002(21a); that text 

categorically designates any person who provides investment advice for a fee a 

fiduciary. Moreover, the Department’s initial interpretation now falls short of

ERISA’s main purpose of protecting participants and beneficiaries, primarily 

because the current interpretation would not apply to many modern advice 

transactions. Section 2, 29 U.S.C. § 1001. The changed environment demands a 

different interpretation that better follows ERISA’s text and purposes. 

A. THERE HAS BEEN A WELL-DOCUMENTED SHIFT FROM DEFINED BENEFIT 

TO RETIREMENT SAVINGS VEHICLES.

Since ERISA’s enactment and the Department’s issuance of regulations in 1975 

defining fiduciary investment advice, retirement plans and investments have so 

significantly changed that there is no longer any justification, if there ever was 

one, for the current regulation’s narrowing of the scope of the statutory

definition of fiduciary investment advice.

Since 1975, there has been a dramatic decline in defined benefits plans--where 

advice was generally provided to more sophisticated employer fiduciaries--and a 

tremendous growth in participant directed defined contribution plans, where 
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

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advice and investment offerings often are provided to less sophisticated and busy 

individuals. At the time of the initial regulation, IRAs had just been created, and 

today’s most popular retirement vehicle--the 401(k) plan--was not created until 

years later, in 1978. Today, most Americans with retirement savings are in 401(k)

or other individual type plans, and are therefore solely responsible for investing 

the plan assets in their individual accounts. In addition, as account holders change 

jobs or approach retirement age, we have seen a significant movement of assets 

from employer-sponsored plans to IRAs. Indeed, the amount of assets in IRAs now 

exceeds that of defined contribution plans, and recent data shows a steady 

increase of those assets, with most of the money coming from rollover 

distributions from 401(k) plans. Investment Company Institute, Retirement Assets 

Total $24.9 Trillion in First Quarter 2015, 

https://www.ici.org/research/stats/retirement/ret_15_q1, (June 24, 2015). This 

growth of IRA assets from pension plans also demands a regulatory response. As 

participants retire or terminate employment and are encouraged to move their 

401(k) assets into IRAs, they are moving from a heavily regulated system with 

fiduciary protection to one without similar protections. This same money, with 

similar tax subsidies and a similar national interest to ensure retirement security, 

should enjoy similar regulatory protections. It is no wonder that the public is in 

favor of a sole interest standard. 

AARP recognizes that, when the Department issued the fiduciary investment 

advice regulation in 1975, professional managers were generally responsible for 

managing plan assets and served as fiduciaries to the plan. While larger 

employers have the knowledge and resources to actively design their plans and 

provide a layer of fiduciary protection for their employees, smaller employers 

usually do not have the time, resources, or financial leverage. Many small 

employers rely to a much greater extent on plans sold by financial service firms 

and others. In order to help employers and employees make appropriate 

investment decisions, it is important to ensure access to qualified investment 

advice that is free of conflicts of interest. To that end, AARP believes that the 

proposed rule would appropriately subject more advice relationships to ERISA’s 

fiduciary and conflict of interest rules while the related proposed exemptions, 

published on the same date as the proposal, would preserve established business 

models and minimize conflicts of interest that affect the quality of the advice.
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July 21, 2015

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In many instances, the individual retirement plan investor may not have the 

academic or financial background to properly evaluate the recommendations 

made by a financial adviser. In some cases, the investor is not seeking advice or 

investments, but is solicited by the adviser, so has not conducted any research or 

considered other investment options. Most financial advisers hold themselves out 

as trusted advisers, and investors in the market currently expect and believe that 

all financial advisers are already acting in their sole interest. AARP, Fiduciary Duty 

and Investment Advice: Attitudes of 401(k) and 403(b) Participants, 

http://www.aarp.org/research/topics/economics/info-2014/fiduciary-duty-andinvestment-advice---attitudes-of-401-k--and-4.html, (September 2013). AARP 

does not believe that holding such advisers to a lesser standard, based in large 

part on disclosures alone, will address the problems of knowledge differential, 

advice need, and the national interest of ensuring adequate retirement income.

Given the confusion and lack of understanding in the financial marketplace, it is 

clear to AARP that disclosure alone is not enough--a fiduciary interest standard is 

needed. AARP believes that if a financial adviser recommends to a plan fiduciary 

or participant the purchase of a certain investment (e.g., XYZ Stock), and the 

adviser receives payment, directly or indirectly, for providing that advice or 

investment (e.g., a fee or commission), the financial adviser should be a fiduciary 

subject to ERISA’s fiduciary responsibility provisions.

Finally, it should be noted that while an IRA is subject to the prohibited 

transaction provisions in Section 4975 of the Internal Revenue Code, subsequent 

to the issuance of the 1975 fiduciary regulation, the Department was given the 

responsibility to interpret the prohibited transaction provisions for purposes of 

both the Code and ERISA. Executive Order: Reorganization Plan No. 4 of 1978, 43 

FR 47713 (Oct. 17, 1978).1This change in authority from the Treasury Department 

to the Labor Department concerning prohibited transaction interpretations is yet 

another overdue reason to review the 1975 fiduciary regulation. 

 

1

The Department‘s application of the prohibited transaction rules to IRAs is not novel. Department

guidance has previously stated that cross-collateralization and indemnification provisions in brokerage 

and other account agreements related to IRAs result in non-exempt prohibited transactions.
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

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B. IN 1975, SOME NOW COMMON INVESTMENT VEHICLES DID NOT EXIST. 

Since 1975, the variety and complexity of investments have dramatically changed. 

For example, in 1975, Wall Street had not yet created collateralized debt 

obligations or contemplated the creation and tremendous growth of target date 

funds. This constantly evolving investment marketplace--along with the evolution 

of the retirement landscape--demonstrates a need for a rule that better protects 

the interests of plans, and their participants and beneficiaries who shoulder 

greater responsibility for the investment of their individual plan accounts or IRAs. 

Maintaining the status quo is not an option. Indeed, we are pleased that the 

financial services industry has largely recognized this--and nearly all groups and 

industry players have embraced the need for a fiduciary standard.

C. TAX INCENTIVES ENCOURAGE THE FORMATION AND CONTINUATION OF 

RETIREMENT PLANS.

Significant tax incentives encourage the offering of and participation in retirement 

plans in order to achieve the important national goal of improved income security 

in retirement. These tax incentives have been successful in encouraging the 

growth of the private retirement system, which now comprises nearly $25 trillion

in assets.

2

AARP has consistently asserted that retirement plan money--which 

receives substantial tax incentives and must meet a long list of tax qualification 

requirements--deserves a higher level of protection than other types of 

investments or purchases. 

ERISA plays a crucial role in ensuring the protection of retirement funds 

subsidized by taxpayers so that participants have sufficient assets for a secure and 

adequate retirement. Safeguarding these monies was among the main reasons 

for ERISA’s enactment, and the fiduciary and conflict of interest rules are the main 

enforcement tools under ERISA. Specifically, ERISA requires fiduciaries to act 

solely in the interest of participants and adhere to its prohibited transaction rules 

and general fiduciary responsibility provisions, which are designed to ameliorate 

conflicts of interest. Because the Department of Labor must conform its 

 

2

These assets total more than the GDP of China, Japan, Germany, United Kingdom and France 

combined. World GDP rankings for 2015, http://knoema.com/nwnfkne/world-gdp-ranking-2015-dataand-charts.
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

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regulatory activities to the statutory framework contained in ERISA and promote 

ERISA’s purposes, financial advisers to ERISA protected plans are not necessarily 

governed by the same rules adopted by the SEC under the securities laws--indeed, 

the rules, while complementary, can be stronger. To that end, AARP believes that 

advice provided to retirement plan investors must be subject to ERISA’s fiduciary 

rules, based on sound investment principles and protected from conflicts of 

interest. Various scandals, such as those involving the manipulation of LIBOR 

interest rates and foreign currency markets, underscore the imperative that such 

advice is independent and free from conflicts of interest, and that the standards 

governing industry practices involving the provision of investment advice are fair, 

clear and easy to understand.

AARP’s comments, unless specifically directed to the impact of the proposal on 

participants and beneficiaries and IRA owners, should be read to be similarly

applicable to fiduciaries of plans who have the authority to make investment 

decisions on behalf of the plan. This is especially important for small employers 

and their fiduciaries who may not have the resources to obtain independent 

advice on plan investment matters. The effect of imprudent or biased advice to a 

plan fiduciary with investment discretion over plan assets will trickle down and 

negatively impact the retirement security of the plan’s participants and 

beneficiaries.

II. AARP SUPPORTS THE PROPOSED REGULATION TO REVISE THE 

DEFINITION OF INVESTMENT ADVICE.

AARP submits the following specific comments on the proposed regulation:

A. AARP, ALONG WITH THE PUBLIC AND THE FINANCIAL SERVICES 

INDUSTRY, AGREES THAT ANYONE WHO PROVIDES INVESTMENT 

ADVICE FOR A FEE SHOULD BE HELD TO ERISA’S FIDUCIARY 

STANDARD. 

The public--including both those saving for retirement and those providing 

workplace retirement savings plans--strongly supports requiring financial advice 

that is solely in the interest of those saving for retirement. In an AARP 2013 

survey of over 1,400 adults who had money saved in either a 401(k) or a 403(b) 
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

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plan, more than nine in ten (93%) respondents favored requiring retirement 

advice to be in their sole interest, and fewer than four in ten (36%) respondents 

indicated they would trust the advice from an adviser who is not required by law 

to provide advice that is in their best interest. AARP, Fiduciary Duty and 

Investment Advice: Attitudes of 401(k) and 403(b) Participants, 

http://www.aarp.org/research/topics/economics/info-2014/fiduciary-duty-andinvestment-advice---attitudes-of-401-k--and-4.html, (September, 2013). In a 

companion survey of over 3,000 plan sponsors of all sizes, nearly nine in ten (89%) 

plan sponsors said that they would favor requiring giving advice that is in the sole

interest of plan participants. AARP, Fiduciary Duty and Investment Advice: 

Attitudes of Plan Sponsors, http://www.aarp.org/research/topics/economics/info

-2014/fiduciary-duty-and-investment-advice---attitudes-of-plan-sponsor.html, 

(March, 2014). Moreover, given that the financial services industry has broadly 

agreed to a fiduciary standard, the remainder of the rule-making process should 

be focused on the process for documenting and implementing this standard.

AARP strongly urges that anyone who provides investment advice for a fee should 

be held to ERISA’s fiduciary standard and protections, to ensure that participants 

and investors receive qualified advice in a cost effective manner for themselves 

and the financial services industry. AARP strongly advocates for the elimination of 

the loopholes in the current definition of investment advice.

B. FREQUENCY OF REGULARITY OF INVESTMENT ADVICE IS 

IMMATERIAL TO WHETHER IT SHOULD BE COVERED BY ERISA’S 

FIDUCIARY STANDARDS. 

AARP supports the Department’s determination not to require investment advice 

to be provided with any particular frequency in order to subject the adviser to 

ERISA’s fiduciary standards. The 1975 regulation permitted advisers to play a 

significant role in connection with a one–time transaction and avoid any potential 

liability for the provision of conflicted advice. AARP believes that the requirement, 

under the current regulation, that advice must be provided “on a regular basis,” 

enables an adviser to make an important investment recommendation to a plan, 

participant or investor and avoid any fiduciary responsibility for his or her actions, 

notwithstanding the potential impact of such advice on the plan. For example, 

advice to take a retirement distribution or to rollover retirement assets upon 
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

Page 8 of 16

termination of employment or retirement may be a one-time transaction for the 

individual, but may be the largest, most significant--and potentially irreversible--

decision that will be made in their lifetime. It makes little sense that advice 

provided on such a monumental decision is effectively exempt under current law. 

The proposed rule would close this loophole. The Department’s proposed 

approach is consistent with the definition of fiduciary found in ERISA and ERISA’s 

overall aim to protect plans, participants and beneficiaries, and IRA owners from 

self-interested biased advice.

AARP also believes that the proposal correctly omits any requirement that the 

parties have a mutual agreement, arrangement or understanding that the advice 

would serve as a primary basis for investment decisions. Under the current 

regulation, financial advisers who play a significant role in the development of the 

investment portfolio of the plan or IRA can disavow fiduciary status and avoid 

liability for imprudent or conflicted advice. It is extremely difficult, under the 

current rules, for largely unsophisticated investors to prove both parties accepted 

the same mutual agreement. Without clear proof, the investor has no claim 

against even the most fraudulent of advisers. The proposed rule attaches 

fiduciary status to an adviser with respect to whom it is understood by the parties 

that the adviser’s advice is individualized to, or that such advice is specifically 

directed to, the advice recipient for consideration in making investment decisions. 

AARP endorses this straightforward approach for determining fiduciary conduct.

C. AN ADVISER’S RECOMMENDATIONS TO TAKE A DISTRIBUTION OF 

ANY KIND SHOULD BE CONSIDERED INVESTMENT ADVICE. 

AARP supports the inclusion of advice related to a recommendation to take a 

distribution of benefits or as to the investment of securities or other property to 

be rolled over or otherwise distributed from the plan or IRA, and a 

recommendation as to the management of securities or other property to be 

rolled over or otherwise distributed from the plan or IRA. AARP believes that the 

added benefits of broadening the scope of activities under the definition of 

fiduciary investment advice to include recommendations regarding the rollover or 

distribution of assets from a plan or IRA are substantial. The preamble to the 

proposed regulation noted that “such ‘rollovers’ will total more than $2 trillion 

over the next 5 years.” Conflict of Interest Rule—Retirement Investment Advice, 
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July 21, 2015

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Proposed Rule, 80 Fed. Reg. 21928, 21932 (Apr. 20, 2015) (to be codified 29 C.F.R. 

pts 2509 and 2510). Print.

AARP notes that, for many people, the account balance in their Plan or IRA 

represents the bulk of their personal savings. As a result, AARP believes that the 

distribution stage and process are a critical part of the cycle of participant events 

because decisions made with respect to the timing and manner of plan 

distributions will often determine the value and effectiveness of a working 

lifetime of retirement savings. In effect, the plan participant is in an extremely 

critical position in determining the timing and manner in which to take a 

distribution from his or her retirement plan or IRA. Decisions made at that time 

are often effectively irreversible, at least in a practical sense, because tax 

consequences and transaction costs generally make it impractical to reverse the 

distribution decision. AARP believes that these distribution decisions will have a 

major impact on the assets accumulated by a plan participant over a lifetime of 

retirement savings. Accordingly, it is essential that the adviser providing guidance 

at this critical juncture to a participant be subject to ERISA’s fiduciary duties. This 

expansion of fiduciary advice should result in greater protections for plan 

participants who may not appreciate that encouragement to take a distribution or 

invest the assets to be rolled over may be driven by factors (e.g., fees or 

commissions) other than the sole interests of the participant.

A recommendation for the participant to take a distribution should constitute the 

provision of investment advice whether or not accompanied by a 

recommendation as to where the distribution should be invested. AARP believes 

that the distribution recommendation is essentially a recommendation that the 

participant sell the underlying assets in his or her individual account or IRA.

AARP recommends that the Department confirm in the final regulation that a 

recommendation to a participant by an adviser to take a loan from a plan should 

also be considered the provision of investment advice. In essence, the participant 

is foregoing other investment opportunities in exchange for a fixed income 

investment. Over the long term, AARP believes that a low interest participant loan 

can have a negative impact on the accumulation of retirement assets. Similarly, 

AARP also urges that the Department confirm in the final rule that the scope of 

activities under the definition of investment advice includes a recommendation to 
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July 21, 2015

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a participant to keep his or her assets in the plan, as well as advice to maintain 

current plan investments.

AARP also urges the Department to clarify the remedies available to a participant 

under ERISA who receives investment advice related to a recommendation to 

take a distribution or roll over assets from an account in an ERISA-covered plan. If 

a participant in an ERISA covered plan receives investment advice from an 

employer-selected adviser, the Department should clearly provide that whenever 

the participant is the recipient of the advice, s/he is the covered retirement 

investor and the participant retains all of their ERISA rights and remedies. AARP 

believes that ERISA’s remedies apply to the recommendations made with respect 

to assets held in an ERISA plan, notwithstanding the subsequent distribution or 

roll over of such assets. AARP encourages the Department’s clarification of its 

views on this important issue in the preamble to the final regulation.

D. THE SELLER’S CARVE-OUT IS APPROPRIATE FOR LARGE AND 

SOPHISTICATED PLANS. 

AARP supports a seller’s carve-out for large plans. Large plans are more likely to 

have dedicated staff and in-house or outside expertise necessary to prudently 

evaluate all transactions and contracts. Conversely, AARP believes that the 

retirement investor may not have the requisite financial expertise to 

independently evaluate the merits of the transaction and the potential conflicts of 

interest. The disclaimers required by this carve-out may not be effective in 

alerting the retirement investor that the advice provided in connection with the 

transaction is not intended to be subject to ERISA’s fiduciary protections.

Similarly, small business owners, preoccupied with running a business, may not 

have the time and expertise to evaluate all transactions. For these reasons, it is 

appropriate to exclude small plans--as well as IRA owners, and plan participants 

and beneficiaries--from the scope of the seller’s carve-out. The Department’s 100 

or more participant limitation is consistent with the filing requirements under the 

Form 5500 and other existing rules and practices. AARP believes that the 

proposed class exemptions and amendments to existing class exemptions and 

potentially other approaches are more appropriate vehicles for the provision of 

investment products and services to the small plan retail market. 
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July 21, 2015

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Under the seller’s carve-out, the counterparty must satisfy either of two sets of 

alternative conditions. Proposed section 2510.3-21(b)(1)(i)(B)(4), under the first 

alternative, requires the counterparty to know or reasonably believe that the 

independent fiduciary has sufficient expertise to prudently evaluate the 

transaction. Although the preamble to the proposed rule notes a similar 

requirement under the second alternative set of conditions, the proposed rule 

does not explicitly require compliance with that condition. AARP recommends the 

inclusion of that requirement in the final rule. AARP believes that the evaluation 

of the independent plan fiduciary’s financial expertise should be a necessary step 

in the counterparty’s ability to take advantage of this carve-out from fiduciary 

status. Several surveys, including by the Government Accountability Office (GAO),

have found that many employers are not aware of their fiduciary status.

3

AARP 

urges the Department to clarify for plans and advisers the needed documentation 

evidencing their compliance with the seller’s carve-out under the proposal. The 

Department should also periodically monitor this standard to ensure it is working 

effectively.

Further, the Department should make clear that the large plan exemption is 

limited to advice provided from the adviser to the plan. Typically, employers 

negotiate a variety of services to be made available to their employees.

Investment advice is one such service. Whether separately negotiated or as one 

of a variety of bundled services, the protections of this rule should be fully 

applicable to the participants of large and small employers. The large plan 

exemption should in no way be interpreted to deny any of the rights that 

participants would otherwise receive under ERISA or this rule.

E. ADVISERS CAN MARKET INVESTMENT PLATFORMS BUT THE 

SELECTORS OF SUCH PLATFORMS STILL MUST MEET THEIR 

FIDUCIARY RESPONSIBILITY. 

AARP supports the Department’s authorization for advisers to market and make 

available specially selected investment platforms to employee benefit plans 

provided the adviser does not undertake to individualize the platform or provide 

advice about the platform. As the Department knows, small employers often are 

 

3

See Private Pensions: Fulfilling Fiduciary Obligations Can Present Challenges for 401(k) Plan Sponsors, 

GAO-08-774: Published: Jul 16, 2008. Publicly Released: Aug 15, 2008.
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July 21, 2015

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sold such platforms with representations that the platform will satisfy the 

employer’s fiduciary obligations. While AARP encourages small employers to 

create retirement plans for their employees, they must undertake a reasonable 

level of due diligence to ascertain the appropriateness of the plan and its 

investments. For example, it is not unreasonable for a small employer to contact 

at least three plan providers and compare their fees and performance. If the 

employer does not feel competent to engage in such a process, there are 

independent advisers available in the market, or advisers can accept fiduciary 

status and provide the services as well. The Department also has provided many 

helpful materials to assist small employers with operating retirement plans. It will 

be a helpful improvement in the market if advisers no longer represent that 

platforms per se satisfy ERISA or the small employer’s fiduciary responsibilities.

AARP also favors the Department’s exclusion of IRA account owners from the 

platform providers’ carve-out. AARP believes that the disclosure requirements of 

this carve-out may not be sufficient to protect the interests of the account owner. 

In this regard, AARP recognizes the significance of the investment selection and 

monitoring process and believes that IRA account holders would be better 

protected by the fiduciary status of the platform provider under the Best Interest 

Contract exemption.

F. THE DEPARTMENT HAS APTLY BALANCED THE PROVISION OF 

INVESTMENT EDUCATION AS COMPARED TO INVESTMENT ADVICE. 

AARP supports the expansion of the carve-out for investment education to 

include plan fiduciaries, non-participant directed plans, as well as participants and 

beneficiaries of participant-directed plans. The provision of the types of 

information described in the proposal will assist the recipients of the information 

in making decisions both during his or her working life and during postretirement. The proposed rule’s specific inclusion of general information relating 

to retirement-related risks and general methods and strategies for managing 

assets in retirement will remove uncertainty about whether such information 

would constitute the rendering of investment advice.

AARP favors the proposed rule’s exclusion of advice or recommendations as to 

specific investment products or specific investment managers from the general 
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July 21, 2015

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information that can be provided under this carve-out. IB 96-1 currently permits 

the use of asset allocation models that refer to specific investments available 

under the plan as long as those specific references are accompanied by a 

statement that other investment alternatives having similar risk and return 

characteristics may be available. AARP believes that participants may rely on the 

identification of specific funds or investments under the plan notwithstanding the 

accompanying disclosure regarding the availability of other appropriate

investment alternatives. The additional disclosures about alternative investments, 

in practice, may be insufficient for the participant to effectively distinguish what 

appears to be specific investment recommendations from general investment 

education. As a result, AARP does not believe that the current language in IB 96-1 

effectively prevents participants from being inappropriately “steered” to specific 

investments by service providers.

However, AARP supports a carve-out for investment education, which permits the 

asset allocation model to identify all investments available under a plan for each 

asset category (e.g., midcap equity, large cap equities and foreign equities). The 

identification of all plan investments satisfying a particular asset class would help 

participants by educating them about the available options already selected by a 

plan fiduciary. 

G. THE CURRENT COORDINATION BETWEEN GOVERNMENT AGENCIES 

SHOULD CONTINUE.

AARP commends the Department for its coordination with related governmental 

agencies, particularly the SEC and the CFTC. The carve-out for swap and securitybased swap transactions clearly reflects the Department’s coordination with 

those Agencies. AARP encourages the Department to continue to coordinate its 

efforts with the SEC and the CFTC. However, AARP does not believe that the 

Department should delay its regulatory proceedings in order to allow the SEC to 

complete its deliberations on a uniform fiduciary standard. Quite simply, the 

Department and the SEC are dealing with overlapping but different statutory 

regimes and issues. The Department is charged with protecting retirement plans, 

and given their importance to individuals, the national goal of retirement income 

security, and changes in the retirement plan landscape, action is already long 

overdue. 
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

Page 14 of 16

H. THE DEPARTMENT’S REGULATORY ANALYSIS DEMONSTRATES THE 

IMPORTANCE OF AN UPDATED RULE.

AARP welcomes the Department’s expanded and more robust regulatory analysis, 

which provides the underlying rationale and support for the proposed regulation.

Of particular concern to AARP is the potential negative impact of conflicts on the 

retirement security of our members and other older Americans. For example, the 

Government Accountability Office (GAO) estimated that $20,000 in a 401(k) 

account that had a one percentage point higher fee for 20 years would result in 

an over 17% reduction--over $10,000--in the account balance. U.S. Gen. 

Accounting Office, GAO-07-21, Private Pensions: Changes Needed to Provide 

401(k) Plan Participants and the Department of Labor Better Information on Fees 

7 (2006). We estimate that over a 30-year period, the account would be about 25 

percent less. Even a difference of only half a percentage point-- 50 basis points--

would reduce the value of the account by 13 percent over 30 years. In short, 

conflicted advice resulting in higher fees and expenses can have a huge impact on 

retirement income security levels.

The Department found that generally risks caused by conflicted investment advice 

are increasing as the baby boomers retire and they move their money from 

protected ERISA plans to IRAs. Indeed, the Department found that advice from 

conflicted investment advisers could cost these retirees between 12 to 24% of 

their retirement savings over thirty years. Department of Labor, Fiduciary 

Investment Advice: Regulatory Impact Analysis 3-4 (2015). The Department found 

that IRA investors tend to be older as they are close to or at retirement. These IRA 

investors are more vulnerable to the negative impact of conflicted advice because 

the amount of assets available for rollover are large, many older investors do not 

have strong financial literacy skills, and they are making significant and often onetime decisions to move their retirement savings from more protected employer 

based plans into significantly less protected IRAs. Id. at 59-60. 

The Department also found that following conflicted advice results in costs and 

losses other than direct higher fees and expenses. For example, investors may 

choose poorer and/or riskier performing investments, they may trade too much 
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

Page 15 of 16

and incur excessive transaction costs, or they may inappropriately chase higher 

returns. Id. at 13, 91.

Moreover, the Department found that not only does conflicted advice give rise to 

additional costs to investors, but also the advice frequently leads to the purchase 

of investments that underperform the market. Id. at 13, 75, (“underperformance 

of broker-sold mutual funds” alone may be more than “100 basis points” so total 

cost adding other investment products will be significantly more). As the 

Department points out, there is a significant cost to the individual--as well as the 

national economy--because the investor has less money to spend. Id. at 102, 132.

The Department also stated that “small savers” (that is, those with low balances 

or those with modest means) are most negatively impacted by the detrimental 

effects of conflicted advice. Those with small accounts have fewer economic 

resources--any additional costs or losses diminish what little savings they have 

worked so hard to amass. Id. at 218.

Significantly, the Department cites studies finding that disclosures alone are 

ineffective at best, and may be meaningless. Id. at 194. Even where investors read 

the disclosures, they may not understand them. Id. at 80 (citing study where even 

the judges at oral argument admit they had problems understanding the 

contracts).

Finally, many participants will be indirectly impacted where conflicted advice is 

provided to the plan fiduciary. Smaller plans are more likely to receive conflicted 

advice because they often receive that advice from those who may be subject to 

conflicts of interest. The negative impact of such conflicted advice to the plan will 

ultimately adversely impact the retirement security of all plan participants. Id. at 

137. 

These findings clearly demonstrate both the importance and need for an updated 

rule that implements a fiduciary standard for anyone who provides investment 

advice for a fee. Those who spend a lifetime working to save and invest for a 

secure retirement need to be able to count on advice that is in their sole interest. 
AARP Comments on DOL Conflict of Interest Rule 

July 21, 2015

Page 16 of 16

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AARP appreciates this opportunity to provide its views on the proposed rule 

defining who is a fiduciary as a result of providing investment advice to a plan or 

its participants or beneficiaries. We have separately submitted comments on the 

Best Interest Contract Exemption, as well as separately submitted our request to 

testify. If you have any questions, please feel free to contact me or Michele 

Varnhagen of our Government Affairs office at 202-434-3829.

Sincerely,

David Certner

Legislative Counsel and 

Legislative Policy Director

Government Affairs